PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted BOOK - ETHICAL AND PROFESSIONAL STANDARDS AND QUANTITATIVE METHODS Reading Assignments and Learning Outcome Statements Study Session - Ethical and Professional Standards 15 Self-Test - Ethical and Professional Standards 95 Study Session - Quantitative Methods: Basic Concepts 102 Study Session - Quantitative Methods: Application 251 Self-Test - Quantitative Methods 369 Formulas 374 Appendices 378 Index 386 ©2014 Kaplan, Inc Page PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted SCHWESERNOTES™ 2015 CFA LEVEL I BOOK 1: ETHICAL AND PROFESSIONAL STANDARDS AND QUANTITATIVE METHODS ©2014 Kaplan, Inc All rights reserved Published in 2014 by Kaplan, Inc Printed in the United States of America ISBN: 978-1-4754-2756-1 / 1-4754-2756-5 PPN: 3200-5522 If this book does not have the hologram with the Kaplan Schweser logo on the back cover, it was distributed without permission of Kaplan Schweser, a Division of Kaplan, Inc., and is in direct violation of global copyright laws Your assistance in pursuing potential violators of this law is greatly appreciated Required CFA Institute disclaimer: “CFA Institute does not endorse, promote, or warrant the accuracy CFA® and Chartered Financial or quality of the products or services offered by Kaplan Schweser Analyst® are trademarks owned by CFA Institute.” Certain materials contained within this text are the copyrighted property of CFA Institute The following is the copyright disclosure for these materials: “Copyright, 2014, CFA Institute Reproduced and republished from 2015 Learning Outcome Statements, Level I, II, and III questions from CFA® Program Materials, CFA Institute Standards of Professional Conduct, and CFA Institute’s Global Investment Performance Standards with permission from CFA Institute All Rights Reserved.” These materials may not be copied without written permission from the author The unauthorized duplication of these notes is a violation of global copyright laws and the CFA Institute Code of Ethics Your assistance in pursuing potential violators of this law is greatly appreciated Disclaimer: The Schweser Notes should be used in conjunction with the original readings as set forth by CFA Institute in their 2015 CFA Level I Study Guide The information contained in these Notes covers topics contained in the readings referenced by CFA Institute and is believed to be accurate However, their accuracy cannot be guaranteed nor is any warranty conveyed as to your ultimate exam success The authors of the referenced readings have not endorsed or sponsored these Notes Page ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted WELCOME TO THE 2015 SCHWESERNOTES™ Thank you for trusting Kaplan Schweser to help you reach your goals We are all very pleased to be able to help you prepare for the Level I CFA Exam In this introduction, I want to explain the resources included with the SchweserNotes, suggest how you can best use Schweser materials to prepare for the exam, and direct you toward other educational resources you will find helpful as you study for the exam Besides the SchweserNotes themselves, there are many educational resources available at Schweser.com Just log in using the individual username and password that you received when you purchased the SchweserNotes Most candidates find our Online Resource Library video “How to Pass the Level I CFA Exam” very helpful in both planning and executing a successful study strategy SchweserNotes™ These consist of five volumes that include complete coverage of all 18 Study Sessions and all Learning Outcome Statements (LOS) with examples, Concept Checkers (multiple-choice questions for every topic review), and Challenge Problems for many topic reviews to help you master the material and check your progress At the end of each major topic area, we include a Self-test Self-test questions are created to be exam¬ like in format and difficulty in order for you to evaluate how well your study of each topic has prepared you for the actual exam Practice Questions To retain what you learn, it is important that you quiz yourself often We offer online and offline versions of the SchweserPro QBank, which contains thousands of Level I practice questions and explanations Quizzes are available for each LOS, topic, or Study Session Build your own exams by specifying the topics and the number of questions you choose Practice Exams Schweser offers six full 6-hour practice exams Practice Exams Volume and Volume each contain three full 240-question exams These are important tools for gaining the speed and skills you will need to pass the exam Each book contains answers with full explanations for self-grading and evaluation By entering your answers at Schweser.com, you can use our Performance Tracker to find out how you have performed compared to other Schweser Level I candidates Schweser Library We have created reference videos, some of which are available to all SchweserNotes purchasers Schweser Library volumes are typically between 20 and 60 minutes in length and cover such topics as: “CFA Level I Exam Overview,” “Calculator Basics,” “Code and Standards Overview,” and “Time Value of Money.” The full Schweser Library is included with our 16-week live or online classes and with our video instruction (online or CDs) Online Schweser Study Calendar Use your Online Access to tell us when you will start and what days of the week you can study The online Schweser Study Calendar will create a study plan just for you, ©2014 Kaplan, Inc Page PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Welcome to the 2015 SchweserNotes™ breaking each study session into daily and weekly tasks to keep you on track and help you monitor your progress through the curriculum The Level I CFA exam is a formidable challenge (63 topic reviews and more than 500 Learning Outcome Statements), and you must devote considerable time and effort to be properly prepared There is no shortcut! You must learn the material, know the terminology and techniques, understand the concepts, and be able to answer 240 questions quickly and (at least 70%) correctly Fifteen to 20 hours per week for 20 weeks is a good estimate of the study time required on average, but some candidates will need more or less time, depending on their individual backgrounds and experience To help you master this material and be well prepared for the CFA Exam, we offer several other educational resources, including: Live Weekly Classroom Programs We offer weekly classroom programs around the world Please check Schweser.com for locations, dates, and availability Online Class Our Online Classes are available at New York time (6:30-9:30 pm) or London time (6:00—9:00 pm) beginning in January and July The approximate schedule for the Level I Online Classes (3-hour sessions) is as follows: Class # Class # Exam Intro/Quantitative Methods SS2 Financial Reporting & Analysis SS10 Quantitative Methods SS3 10 Corporate Finance SS11 Economics SS4, Economics SS5, 11 Equity Investments SS13, 14 Financial Reporting & Analysis SS7 13 Fixed Income SS16 12 Fixed Income SSI Financial Reporting & Analysis SS8 14 Derivatives SSI 7 Financial Reporting & Analysis SS8, 15 Portfolio Management & Alternative Investments SSI 2, 18 Financial Reporting & Analysis SS9 Archived classes are available for viewing at any time throughout the season Candidates enrolled in the Online Classes also have full access to supplemental on-demand video instruction in the Schweser Library and an e-mail address to use to send questions to the instructor at any time Late Season Review Whether you use self-study or in-class, online, or video instruction to learn the CFA curriculum, a late-season review and exam practice can make all the difference Our most complete late-season review course is our residence program in Windsor, Ontario (WindsorWeek) where we cover the entire curriculum over seven days (May 2-8, 2015) at all three levels We offer 3-Day Live Exam Review Workshops in many cities (and online) that combine curriculum review with an equal component of hands-on practice with hundreds of questions and problem-solving techniques We also offer Exam Review Workshops in a 5-day format in Dallas/Fort Worth and New York Please visit us at Page ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Welcome to the 2015 SchweserNotes™ Schweser.com for complete listings and course descriptions for all our late-season review offerings Mock Exam and Multimedia Tutorial The Schweser Mock Exam will be offered live in over 100 locations around the world in late May and late November, and as an online exam as well The included Exam Tutorial provides extended explanations and topic tutorials to get you exam-ready in topic areas where you miss questions on the Mock Exam Please visit Schweser.com for a listing of cities and locations Topic Weighting In preparing for the exam, you must pay attention to the weights assigned within the curriculum The Level I topic weights are as follows: to each topic Exam Weight Topic Ethical and Professional Standards 15% Quantitative Methods 12% Economics 10% Financial Reporting and Analysis 20% Corporate Finance Portfolio Management 7% 7% Equity Investments 10% Fixed Income 10% Derivatives 5% Alternative Investments 4% Total 100% EIow to Succeed There are no shortcuts; depend on the fact that CFA Institute will test you in a way that will reveal how well you know the Level I curriculum You should begin early and stick to your study plan You should first read the SchweserNotes and complete the Concept Checkers and Challenge Problems for each topic review You should prepare for and attend a live class, an online class, or a study group each week You should take quizzes often using SchweserPro Qbank and go back to review previous topics and Study Sessions as well At the end of each topic area, you should take the Self-test to check your progress You should finish the overall curriculum at least four weeks (preferably longer) before the Level I exam so that you have sufficient time for Practice Exams and for further review of those topics that you have not yet mastered I would like to thank Craig Prochaska, CFA, Content Specialist, for his contributions to producing the Level I SchweserNotes for the CFA Exam Best regards, “Dotty 'Uatt Sato* Dr Douglas Van Eaton, CFA SVP of CFA Education and Level I Manager Kaplan Schweser ©2014 Kaplan, Inc Page PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted READING ASSIGNMENTS AND LEARNING OUTCOME STATEMENTS The following material is a review of the Ethical and Professional Standards and Quantitative Methods principles designed to address the learning outcome statements setforth by CFA Institute STUDY SESSION l Reading Assignments Ethical and Professional Standards and Quantitative Methods, CFA Program Level I 2015 Curriculum, Volume (CFA Institute, 2014) Code of Ethics and Standards of Professional Conduct page 15 Guidance for Standards I-VII page 15 Introduction to the Global Investment Performance Standards (GIPS®) page 85 The GIPS Standards page 87 STUDY SESSION Reading Assignments Ethical and Professional Standards and Quantitative Methods, CFA Program Level I 2015 Curriculum, Volume (CFA Institute, 2014) page 102 The Time Value of Money Discounted Cash Flow Applications page 143 page 168 Statistical Concepts and Market Returns Probability Concepts page 207 STUDY SESSION Reading Assignments Ethical and Professional Standards and Quantitative Methods, CFA Program Level 12015 Curriculum, Volume (CFA Institute, 2014) page 251 Common Probability Distributions 10 Sampling and Estimation page 287 11 Hypothesis Testing page 310 12 Technical Analysis page 350 ©2014 Kaplan, Inc Page PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Reading Assignments and Learning Outcome Statements LEARNING OUTCOME STATEMENTS (LOS) STUDY SESSION l The topical coverage corresponds with thefollowing CFA Institute assigned reading: Code of Ethics and Standards of Professional Conduct The candidate should be able to: a describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards, (page 15) b state the six components of the Code of Ethics and the seven Standards of Professional Conduct, (page 16) c explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard, (page 17) Guidance for Standards I-VII The candidate should be able to: a demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity, (page 20) b distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards, (page 20) c recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct, (page 20) Introduction to the Global Investment Performance Standards (GIPS®) The candidate should be able to: a explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is served by the standards, (page 85) b explain the construction and purpose of composites in performance reporting (page 86) c explain the requirements for verification, (page 86) The GIPS Standards The candidate should be able to: a describe the key features of the GIPS standards and the fundamentals of compliance, (page 87) b describe the scope of the GIPS standards with respect to an investment firm’s definition and historical performance record, (page 89) c explain how the GIPS standards are implemented in countries with existing standards for performance reporting and describe the appropriate response when the GIPS standards and local regulations conflict, (page 89) d describe the nine major sections of the GIPS standards, (page 89) STUDY SESSION The Time Value of Money The candidate should be able to: a interpret interest rates as required rates of return, discount rates, or opportunity costs, (page 104) b explain an interest rate as the sum of a real risk-free rate, and premiums that compensate investors for bearing distinct types of risk, (page 105) c calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding, (page 105) Page 10 ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Reading Assignments and Learning Outcome Statements d solve time value of money problems for different frequencies of compounding (page 107) e calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows, (page 108) f demonstrate the use of a time line in modeling and solving time value of money problems, (page 123) Discounted Cash Flow Applications The candidate should be able to: a calculate and interpret the net present value (NPV) and the internal rate of return (IRR) of an investment, (page 143) b contrast the NPV rule to the IRR rule, and identify problems associated with the IRR rule, (page 146) c calculate and interpret a holding period return (total return), (page 148) d calculate and compare the money-weighted and time-weighted rates of return of a portfolio and evaluate the performance of portfolios based on these measures (page 148) e calculate and interpret the bank discount yield, holding period yield, effective annual yield, and money market yield for US Treasury bills and other money market instruments, (page 152) f convert among holding period yields, money market yields, effective annual yields, and bond equivalent yields, (page 155) Statistical Concepts and Market Returns The candidate should be able to: a distinguish between descriptive statistics and inferential statistics, between a population and a sample, and among the types of measurement scales (page 168) b define a parameter, a sample statistic, and a frequency distribution, (page 169) c calculate and interpret relative frequencies and cumulative relative frequencies, given a frequency distribution, (page 171) d describe the properties of a data set presented as a histogram or a frequency polygon, (page 174) e calculate and interpret measures of central tendency, including the population mean, sample mean, arithmetic mean, weighted average or mean, geometric mean, harmonic mean, median, and mode, (page 175) f calculate and interpret quartiles, quintiles, deciles, and percentiles, (page 180) g calculate and interpret 1) a range and a mean absolute deviation and 2) the variance and standard deviation of a population and of a sample, (page 181) h calculate and interpret the proportion of observations falling within a specified number of standard deviations of the mean using Chebyshev’s inequality (page 185) i calculate and interpret the coefficient of variation and the Sharpe ratio (page 186) j explain skewness and the meaning of a positively or negatively skewed return distribution, (page 188) k describe the relative locations of the mean, median, and mode for a unimodal, nonsymmetrical distribution, (page 189) explain measures of sample skewness and kurtosis (page 190) m compare the use of arithmetic and geometric means when analyzing investment returns, (page 192) ©2014 Kaplan, Inc Page 11 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Reading Assignments and Learning Outcome Statements Probability Concepts The candidate should be able to: a define a random variable, an outcome, an event, mutually exclusive events, and exhaustive events, (page 207) b state the two defining properties of probability and distinguish among empirical, subjective, and a priori probabilities, (page 207) c state the probability of an event in terms of odds for and against the event (page 208) d distinguish between unconditional and conditional probabilities, (page 209) e explain the multiplication, addition, and total probability rules, (page 209) f calculate and interpret 1) the joint probability of two events, 2) the probability that at least one of two events will occur, given the probability of each and the joint probability of the two events, and 3) a joint probability of any number of independent events, (page 210) g distinguish between dependent and independent events, (page 213) h calculate and interpret an unconditional probability using the total probability rule, (page 214) i explain the use of conditional expectation in investment applications, (page 218) j explain the use of a tree diagram to represent an investment problem, (page 218) k calculate and interpret covariance and correlation, (page 219) calculate and interpret the expected value, variance, and standard deviation of a random variable and of returns on a portfolio, (page 223) m calculate and interpret covariance given a joint probability function, (page 224) n calculate and interpret an updated probability using Bayes’ formula, (page 228) o identify the most appropriate method to solve a particular counting problem, and solve counting problems using factorial, combination, and permutation concepts, (page 230) STUDY SESSION Common Probability Distributions The candidate should be able to: a define a probability distribution and distinguish between discrete and continuous random variables and their probability functions, (page 251) b describe the set of possible outcomes of a specified discrete random variable (page 251) c interpret a cumulative distribution function, (page 253) d calculate and interpret probabilities for a random variable, given its cumulative distribution function, (page 253) e define a discrete uniform random variable, a Bernoulli random variable, and a binomial random variable, (page 254) f calculate and interpret probabilities given the discrete uniform and the binomial distribution functions, (page 254) g construct a binomial tree to describe stock price movement, (page 257) h calculate and interpret tracking error, (page 259) i define the continuous uniform distribution and calculate and interpret probabilities, given a continuous uniform distribution, (page 259) j explain the key properties of the normal distribution, (page 261) k distinguish between a univariate and a multivariate distribution, and explain the role of correlation in the multivariate normal distribution, (page 261) Page 12 ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Formulas weighted mean: Xw = YÿwjX; i=l position of the observation at a given percentile, y: Ly =(n + l) — 100 range = maximum value - minimum value excess kurtosis = sample kurtosis - Elxi-x| MAD = — n N E(Xi-p)2 population variance = a2 —- = N where p = population mean and N = number of possible outcomes E(xi-x)2 sample variance = s2 = < coefficient of variation: CV = Sharpe ratio = , where X = sample mean and n = sample size n —1 X = standard deviation of x average value of x rp-f CTP joint probability: P(AB) = P(A | B) x P(B) addition rule: P(A or B) = P(A) + P(B) - P(AB) multiplication rule: P(A and B) = P(A) x P(B) total probability rule: P(R) = P(R | Sj) x P(Sj) + P(R | S2) x P(S2) + + P(R | SN) x P(SN) expected value: E(X) = XPlxjjx; = P(XJ)XJ + P(x2)x2+ + P(xn)xn Cov(R;,Rj) = E{[R;- E(R;)][Rj - E(Rj)]} Cov(R;,Rj) CorrfR;,Rj;j = — ' CT (Ri)a(Rj) ©2014 Kaplan, Inc Page 375 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Formulas portfolio expected return: N EÿRp j = = WJEIRJ) + w2E(R2) + ••• +WnE(Rn) i=l N portfolio variance: N VarÿRp j = y~iy~lwiwiCov(R;,Rj) i=l j=l where w; = market value of investment in asset i market value of the portfolio Bayes’ formula: updated probability = probability of new information for a given event X prior probability of event unconditional probability of new information _ combination (binomial) formula: n! (n — r)! r ! n! permutation formula: n binomial probability: p(x) = Pr = (n-r)! n! (n — x)!x! PX(1-P)n— X for a binomial random variable: E(X) = np; variance = np(l - p) for a normal variable: 90% confidence interval forX is X— 1.65s to X + 1.65s 95% confidence interval forX is X- 1.96s to X + 1.96s 99% confidence interval forX is X— 2.58s to X + 2.58s — observation population mean standard deviation SFRatio = x—p a |E(Rp)-Rd CTP continuously compounded rate of return: rcc = ln for a uniform distribution: P(xj < X < x2) = Si =ln(l + HPR) — lsoJ (x2 ~xl) (b-a) sampling error of the mean = sample mean - population mean = x - p — standard error of the sample mean, known population variance: cr- = = Page 376 ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Formulas standard error of the sample mean, unknown population variance: sx — ~r Vn confidence interval: point estimate ± (reliability factor x standard error) confidence interval for the population mean: x ± za/2 —F 4~n tests for x ~h0 population mean = pQ: z-statistic = — a I \fn test for equality of variances: F = Sl , where paired comparisons test: t-statistic = test for , r-statistic = x~ho s / yfn > s2 d-ddz sd differences in means: r-statistic = (X1 'l + ± ,nl r-statistic = — x2 ) -jjj (sample variances assumed unequal) n2 (xl-x2) (sample variances assumed equal) + SP_' nl n2 ©2014 Kaplan, Inc Page 377 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted APPENDIX A: AREAS UNDER THE NORMAL CURVE Most of the examples in this book have used one version of the z-table to find the area under the normal curve This table provides the cumulative probabilities (or the area under the entire curve to left of the z-value) Probability Example Assume that the annual earnings per share (EPS) for a large sample of firms is normally distributed with a mean of $5.00 and a standard deviation of $1.50 What is the approximate probability of an observed EPS value falling between $3.00 and $7.25? If EPS = x = $7.25, then z = [x- p)/o = ($7.25 - $5.00)/$1.50 = +1.50 If APS = x = $3.00, then z = (x- p)/cj = ($3.00 - $5.00)/$ 1.50 = -1.33 Solving Using The Cumulative Z-Table For z-value of 1.50: Use the row headed 1.5 and the column headed to find the value 0.9332 This represents the area under the curve to the left of the critical value 1.50 For z-value of —1.33: Use the row headed 1.3 and the column headed to find the value 0.9082 This represents the area under the curve to the left of the critical value +1.33 The area to the left of —1.33 is — 0.9082 = 0.0918 The area between these critical values is 0.9332 - 0.0918 = 0.8414, or 84.14% Hypothesis Testing — One-Tailed Test Example A sample of a stock’s returns on 36 nonconsecutive days results in a mean return of 2.0 percent Assume the population standard deviation is 20.0 percent Can we say with 95 percent confidence that the mean return is greater than zero percent? x Hq: |i < 0.0%, Ha: p > 0.0% The test statistic = z-statistic = — ~Po = (2.0 -0.0) / a I Vn (20.0/ 6) = 0.60 The significance level = 1.0 - 0.95 = 0.05, or 5% Because we are interested in a return greater than 0.0 percent, this is a one-tailed test Using the Cumulative Z-Table Because this is a one-tailed test with an alpha of 0.05, we need to find the value 0.95 in the cumulative z-table The closest value is 0.9505, with a corresponding critical z-value of 1.65 Because the test statistic is less than the critical value, we fail to reject H() Page 378 ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Appendix A: Areas Under the Normal Curve Hypothesis Testing - Two-Tailed Test Example Using the same assumptions as before, suppose that the analyst now wants to determine if he can say with 99% confidence that the stock’s return is not equal to 0.0 percent Hq: p = 0.0%, Ha: p 0.0% The test statistic (z-value) = (2.0 - 0.0) / (20.0 / 6) = 0.60 The significance level = 1.0 — 0.99 = 0.01, or 1% Because we are interested in whether or not the stock return is nonzero, this is a two-tailed test Using the Cumulative Z-Table Because this is a two-tailed test with an alpha of 0.01, there is a 0.005 rejection region in both tails Thus, we need to find the value 0.995 (1.0 - 0.005) in the table The closest value is 0.9951, which corresponds to a critical z-value of 2.58 Because the test statistic is less than the critical value, we fail to reject H() and conclude that the stock’s return equals 0.0 percent ©2014 Kaplan, Inc Page 379 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Appendix A: Areas Under the Normal Curve P(Z) < z CUMULATIVE Z-TABLE STANDARD NORMAL DISTRIBUTION P(Z < z) = N(z) FOR Z > z 0.0 0.1 0.2 0.00 0.01 0.02 0.03 0.5000 0.5398 0.5793 0.5040 0.5438 0.5080 0.5478 0.3 0.4 0.6179 0.6554 0.5832 0.6217 0.5871 0.6255 0.6591 0.6628 0.5120 0.5517 0.5910 0.6293 0.6664 0.6915 0.6950 0.6985 0.7257 0.7580 0.7881 0.8159 0.7291 0.7611 0.7910 0.8186 0.7324 0.7642 1.1 1.2 0.8413 0.8643 0.8849 0.8461 0.8686 1.3 1.4 0.9032 0.9192 0.8438 0.8665 0.8869 0.9049 1.5 1.6 1.7 0.9332 0.5 0.6 0.7 0.8 0.9 1.0 0.9207 0.7939 0.8212 0.8888 0.9066 0.9222 1.8 0.9452 0.9554 0.9641 0.9345 0.9463 0.9564 0.9649 1.9 0.9713 0.9719 2.0 0.9772 0.9821 0.9778 0.9826 0.9864 0.9896 0.9920 0.9941 0.9956 0.9967 0.9976 0.9982 0.9987 2.1 2.2 0.9861 2.3 2.4 0.9893 0.9918 2.5 2.6 2.7 0.9938 0.9953 0.9965 2.8 0.9974 0.9940 0.9955 0.9966 0.9975 2.9 3.0 0.9981 0.9987 0.9982 0.9987 Page 380 0.9357 0.7019 0.7357 0.7673 0.7967 0.8238 0.8485 0.04 0.5160 0.5557 0.5948 0.6331 0.6700 0.5319 0.5359 0.5753 0.6141 0.6517 0.6879 0.6808 0.5714 0.6103 0.6480 0.6844 0.7123 0.7157 0.7454 0.7764 0.7486 0.7794 0.8023 0.8289 0.8051 0.8315 0.8078 0.8531 0.8554 0.8749 0.8944 0.8770 0.8962 0.8577 0.8790 0.8980 0.9115 0.9265 0.9131 0.9279 0.9147 0.9292 0.9162 0.9306 0.8621 0.8830 0.9015 0.9177 0.9319 0.9394 0.9505 0.9406 0.9515 0.9608 0.9686 0.9418 0.9525 0.9616 0.9693 0.9756 0.9429 0.9535 0.9625 0.9699 0.9761 0.9441 0.9545 0.9633 0.9706 0.9767 0.9808 0.9850 0.9812 0.9884 0.9887 0.9913 0.9817 0.9857 0.9890 0.9916 0.9936 0.7704 0.7995 0.8264 0.9382 0.9474 0.9484 0.9495 0.9582 0.9591 0.9599 0.9656 0.9726 0.9664 0.9671 0.9732 0.9738 0.9678 0.9744 0.9783 0.9830 0.9788 0.9868 0.9871 0.9901 0.9925 0.9793 0.9838 0.9875 0.9977 0.9983 0.9988 0.6406 0.6772 0.09 0.5279 0.5675 0.6064 0.6443 0.7088 0.9370 0.9943 0.9957 0.9968 0.6026 0.08 0.7422 0.7734 0.9573 0.9898 0.9922 0.5636 0.07 0.7054 0.9236 0.9834 0.06 0.5239 0.7389 0.8508 0.8729 0.8925 0.9099 0.9251 0.8708 0.8907 0.9082 0.05 0.5199 0.5596 0.5987 0.6368 0.6736 0.9750 0.9798 0.9803 0.9842 0.9846 0.9927 0.9878 0.9906 0.9929 0.9881 0.9909 0.9931 0.9945 0.9959 0.9969 0.9977 0.9984 0.9946 0.9960 0.9970 0.9978 0.9984 0.9948 0.9961 0.9988 0.9989 0.9904 0.9971 0.9979 0.9985 0.9989 ©2014 Kaplan, Inc 0.8340 0.9911 0.9932 0.7190 0.7517 0.7823 0.8106 0.8365 0.8599 0.8810 0.8997 0.9854 0.9934 0.7224 0.7549 0.7852 0.8133 0.8389 0.9949 0.9962 0.9972 0.9979 0.9985 0.9951 0.9963 0.9973 0.9980 0.9981 0.9986 0.9986 0.9989 0.9990 0.9990 0.9952 0.9964 0.9974 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Appendix A: Areas Under the Normal Curve P(Z < z) CUMULATIVE Z-TABLE (CONT.) -z STANDARD NORMAL DISTRIBUTION P(Z < z) = N(z) FOR z < z 0.0 -0.1 -0.2 -0.3 0.00 0.01 0.02 0.03 0.5000 0.4602 0.4207 0.4960 0.4562 0.4168 0.3821 0.3783 0.4920 0.4522 0.4129 0.3745 -0.4 0.3446 0.3409 0.3372 0.4880 0.4483 0.4090 0.3707 0.3336 -0.5 -0.6 -0.7 0.3085 0.2743 0.2420 0.3015 0.2676 0.2358 -0.8 0.2119 0.1841 0.3050 0.2709 0.2389 0.2090 0.1814 -0.9 -1.0 -1.1 -1.2 -1.3 -1.4 -1.5 -1.6 -1.7 -1.8 -1.9 -2.0 -2.1 -2.2 -2.3 -2.4 0.1587 0.1357 0.1151 0.0968 0.0808 0.1562 0.1335 0.1539 0.1131 0.0951 0.0793 0.1112 0.0668 0.0655 0.0548 0.0537 0.0436 0.0351 0.0446 0.0359 0.0287 0.0281 0.0228 0.0222 0.0179 0.0139 0.0107 0.0174 0.0136 0.0082 0.0080 0.0104 -2,5 0.0062 0.0060 -2.6 -2.7 0.0047 0.0045 0.0034 -2.8 -2.9 -3.0 0.0035 0.0026 0.0019 0.0013 0.2061 0.1788 0.0025 0.04 0.4840 0.4443 0.4052 0.3669 0.3300 0.2981 0.2946 0.2643 0.2611 0.2297 0.2005 0.2327 0.2033 0.1762 0.1736 0.05 0.4801 0.4404 0.4013 0.3632 0.3264 0.0749 0.0643 0.0526 0.0427 0.0344 0.0274 0.0630 0.0516 0.0618 0.0606 0.0505 0.0409 0.0329 0.0262 0.0495 0.0059 0.0044 0.0033 0.0024 0.0018 0.0018 0.0013 0.0013 0.0212 0.0076 0.0057 0.0043 0.0032 0.0023 0.0017 0.0012 0.0207 0.0162 0.0125 0.0096 0.0073 0.3228 0.2877 0.2843 0.2514 0.2207 0.1922 0.1660 0.0392 0.0764 0.0166 0.0129 0.0099 0.3897 0.3520 0.0594 0.0485 0.0778 0.0217 0.0170 0.0132 0.0102 0.0078 0.3936 0.3557 0.3192 0.1423 0.0934 0.0418 0.0336 0.0268 0.09 0.4641 0.4247 0.3859 0.1446 0.1230 0.1038 0.0869 0.0721 0.1469 0.1251 0.1057 0.0885 0.0735 0.1075 0.0901 0.08 0.4681 0.4286 0.2546 0.2236 0.1949 0.1685 0.1492 0.1271 0.07 0.4721 0.4325 0.2912 0.2578 0.2266 0.1977 0.1711 0.1515 0.1292 0.1093 0.0918 0.1314 0.06 0.4761 0.4364 0.3974 0.3594 0.0401 0.0322 0.0256 0.0314 0.0250 0.0202 0.0197 0.0158 0.0154 0.0122 0.0119 0.0091 0.0069 0.0094 0.0071 0.3121 0.2810 0.2776 0.2451 0.2148 0.1867 0.2483 0.2177 0.1894 0.1635 0.1401 0.1190 0.1003 0.0838 0.1611 0.0694 0.1379 0.1170 0.0985 0.0823 0.0681 0.0582 0.0571 0.0559 0.0475 0.0465 0.0384 0.0307 0.0244 0.0375 0.0301 0.0455 0.0367 0.0294 0.0239 0.0233 0.1210 0.1020 0.0853 0.0708 0.0192 0.0150 0.0116 0.0089 0.0068 0.0188 0.0183 0.0146 0.0113 0.0143 0.0087 0.0066 0.0084 0.0064 0.0048 0.0036 0.0055 0.0041 0.0031 0.0054 0.0052 0.0051 0.0049 0.0040 0.0030 0.0022 0.0038 0.0028 0.0021 0.0037 0.0027 0.0023 0.0016 0.0012 0.0039 0.0029 0.0021 0.0016 0.0015 0.0015 0.0014 0.0011 0.0011 0.0011 0.0010 ©2014 Kaplan, Inc 0.3483 0.3156 0.0020 0.0110 0.0026 0.0019 0.0014 0.0010 Page 381 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted APPENDIX B: STUDENT’S Level of Significance for One-Tailed Test df 0.100 df 0.20 3.078 1.886 1.638 1.533 7_ 1.440 1.415 9_ 10 1.397 1.383 1.372 11 12 1.363 1.356 13 0-025 0.01 Level of Significance for Two-Tailed Test 0.02 0.10 0.05 6.314 31.821 12.706 4.303 2.920 6.965 3.182 4.541 2.353 2.776 3.747 2.132 3.365 2.015 2.571 0.005 0.0005 0.01 0.001 63.657 9.925 636.619 31.599 5.841 12,294 4.604 8.610 6.869 4,032 1.943 2,447 3.143 3.707 1.895 1.860 1.833 2.365 2.306 2.998 2.896 2,262 2,821 1.812 2.228 2.764 3.499 3.355 3.250 3.169 1.796 2.201 2.718 2,179 2,681 1.350 1.782 1.771 2.160 2.650 3.106 3.055 3.012 14 L5 1.345 1.341 1.761 1.753 2,145 2,624 2,977 4,140 2.131 2.602 2.947 4.073 16 17 18 19 20 1.337 1.333 1.330 1.328 1.325 1.746 1.740 1.734 1.729 1.725 4.015 3.965 21 22 1.323 1.321 1.319 1.318 1.316 1.721 1.717 23 24 25 Page 382 1.476 0.050 1.714 1.711 1.708 2.552 2.539 2.528 2.878 2.518 2.508 2.500 2.492 2.485 2.831 2.819 2.807 2.797 2.787 3.819 3.792 3.707 3.690 2.086 2.080 2.074 2.069 2.064 2.060 2,861 2.845 2.467 2.462 2.763 2.756 1.697 2.042 2.457 2.750 1.684 1.671 1.658 1.645 2.021 2.000 2.423 2.390 2.358 2.326 40 60 120 oo 1.303 1.282 2.101 2,093 2.045 1.313 1.311 1.310 1.296 1.289 2.921 2,898 2.779 28 29 30 4,318 4.221 2.583 2,771 1.703 1.701 1.699 4.437 2.567 2.479 1.706 1.314 4.587 2,110 2,473 1.315 5.041 4,781 2.120 2.056 2.052 2.048 26 27 5.959 5.408 1.980 1.960 ©2014 Kaplan, Inc 2.704 3.922 3.883 3.850 3.768 3.745 3.725 3.674 3.659 3.646 2.660 3.551 3.460 2.617 2.576 3.373 3.291 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted APPENDIX C: F-TABLE AT PERCENT (UPPER TAIL) F-TABLE, CRITICAL VALUES, PERCENT IN UPPER TAIL Degrees of freedom for the numerator along top row Degrees of freedom for the denominator along side row _2 3_ 4_ _3 216 19.2 9.28 225 19.2 9.12 161 200 18.5 19.0 9.55 6.94 6.59 6.39 5.79 5.41 5.19 10,1 7.71 6.61 7_ 8_ _9 5.99 5.59 5.32 5.12 10 4,96 5_ 230 19.3 9.01 6.26 5.05 1_ 234 237 239 19.3 8.94 6.16 4.95 19.4 19.4 8.85 5.14 4.76 4,53 4,39 4,28 4.74 4.35 4.12 3.97 3.87 4.46 4.07 3.84 3.69 3.58 4.26 3.86 3.63 3.48 3.37 4,10 3.71 3.48 3.33 3.22 8.89 9_ 241 20 248 19.4 19.4 19.4 19.4 8.79 8.74 5.96 5.91 4.74 4.68 4,21 4,15 4,10 3.79 3.50 3.29 3.14 3.73 3.68 3.39 3.18 3.02 3.44 15_ 246 19.4 4,88 3.23 3.07 12 244 8.81 6.00 6.04 4.82 6.09 10 242 4.77 8.70 8.66 5.86 5.80 4.62 4.56 4.06 4,00 3.94 3.64 3.57 3.51 3.35 3.28 3.22 3.14 3.07 6.01 2.94 2,85 2.77 2,98 2,91 3.87 3.44 3.15 24 249 19.5 8.64 5.77 4.53 3.84 3.41 30 250 19.5 8.62 5.75 4.50 40 251 19.5 8.59 5.72 4,46 3.77 3.34 3.12 2.90 3.81 3.38 3.08 2.86 2.83 2.74 2,70 2,66 3.04 11 4.84 3.98 3.59 3.36 3.20 3.09 3.01 2.95 2.90 2.85 2.79 2.72 2.65 2.61 2.57 2.53 13 4.75 4.67 14 4.60 3.49 3.26 3.41 3.18 3.74 3.34 3.11 3.68 3.29 3.06 2.80 2.71 2.71 2.85 2.77 2.70 2.64 18 4.49 3.63 3.24 3.01 2.85 2.74 2.66 4.45 3.59 3.20 2.96 2.81 2.70 2.61 4,41 3.55 3.16 2,93 2.77 2.66 2,58 2.59 2.55 2.51 2.54 2.49 2.46 19 4,38 3.52 20 4.35 3.49 11 4,32 4,30 12 11 4.54 H 17 3.89 3.81 3.11 3.03 2.96 2.90 2.76 2.65 2.59 2.69 2.62 2.54 2.75 2.67 2.60 2.54 2.60 2.53 2.48 2.53 2.46 2.40 2.49 2.45 2.42 2.38 2.35 2.31 2.27 2.46 2.39 2.33 2.28 2,41 2,34 2,90 2,74 2,63 2,54 2,48 2,42 2,38 2,23 2.87 2.71 2.60 2.51 2.45 2.39 2.35 2,31 2,28 2.20 212 2.84 2.68 2.57 2.49 2.42 2,37 2.32 2.25 218 2,82 2,66 2,55 2,46 2,40 2,34 2,30 2,23 2.80 2.53 2.51 2.37 2.36 2.34 2.32 2.30 2.28 2.27 2.25 2.20 218 2,49 2.44 2.42 2.40 215 2.13 2,24 216 2.42 2.33 2.27 2.21 216 2.09 2.01 2.45 2.34 2.25 218 315 2,76 2.53 2.37 2.25 217 210 3.07 2,68 2.45 2.29 218 2.09 2,02 3.84 3.00 2.60 2.37 2.21 2.10 2.01 1.94 212 2,08 2,00 1.92 1.93 1.84 2.04 1.96 1.99 1.91 1.83 1.92 1.83 1.75 1.84 1.75 1.67 1.75 1.66 1.57 313 310 23 24 25 4.28 4.26 4,24 3.39 2.76 2.64 2.62 2.60 30 40 60 120 4.17 3.32 2.92 2.69 2.53 oo 2.91 2.83 2.23 219 216 3.47 3.44 3.42 3.40 22 3.00 2.92 2.85 2.79 4.08 4.00 3.92 3.23 3.07 3.05 3.03 3.01 2.99 2,84 2.78 2,61 ©2014 Kaplan, Inc 1.88 2.11 2.09 2.51 2.42 2.35 2.29 2.24 2.19 2.15 2.47 2.43 2.38 2.31 2.25 2,34 2.19 2.15 2.15 2.10 2.27 2.20 211 2.06 211 2.08 2,07 2,03 2.04 1.99 210 2.05 2,01 1.96 2,07 2,03 1.98 1,94 2.05 2.03 2.01 1.96 1.94 1.92 1.91 1.89 1.87 1.84 1.74 1.79 1.69 1.65 1.55 1.59 1.50 1.39 2.01 1.98 1.96 1.89 1.79 1.70 1.61 1.52 1.46 Page 383 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted APPENDIX D: F-TABLE AT 2.5 PERCENT (UPPER TAIL) F-TABLE, CRITICAL VALUES, 2.5 PERCENT IN UPPER TAILS Degrees of freedom for the numerator along top row Degrees of freedom for the denominator along side row 648 799 864 38.51 39.00 39.17 17.44 16.04 15.44 12.22 10.65 9.98 10.01 8.43 7.76 z 10 12 15 20 24 30 40 900 922 937 948 957 963 969 977 985 993 997 1001 1006 39.25 39.30 39.33 39.36 39.37 39.39 39.40 39.41 39.43 39.45 39.46 39.46 39.47 15.10 14.88 14.73 14.62 14.54 14.47 14.42 14.34 14.25 14.17 14,12 14.08 14.04 9.60 9.36 9.20 9.07 8.98 8.90 8.84 8.75 8.66 8.56 8.51 8.46 8.41 7.39 7.15 6.98 6.85 6.76 6.68 6.62 6.52 6.43 6.33 6.28 6.23 6.18 6.23 5.99 5.52 5.29 5.05 4.82 4.72 4.48 4.47 4.24 8.81 7.26 Z 8.07 6.54 7.57 7.21 6.06 5.71 10 6.94 5.46 11 12 6.72 6.55 6.41 6.30 4.63 4.47 4,97 4.35 4.28 4.12 4,00 3.89 3.77 4.86 6.20 4.77 4.15 3.89 3.80 3.66 3.58 6.12 6.04 5.98 5.92 5.87 4.69 4,08 3.73 4.62 4.01 3.95 3.90 3.86 3.66 3.61 3.56 3.51 3.50 3.44 5.83 5.79 5.75 5.72 5.69 4,42 3.48 3.44 3.41 4.32 4.29 3.82 3.78 3.75 3.72 3.69 3.38 3.35 3.25 3.22 3.18 3.15 3.13 5.57 4.18 3.59 3.25 3.03 11 14 15 16 17 18 19 20 21 22 23 24 25 30 40 60 6.60 5.89 5.42 5.08 4.83 5.26 5.10 4,56 4.51 4.46 4.38 4,35 4.24 4,04 3.38 3.33 3.29 5.42 4.05 3.46 3.13 2.90 5.29 3.93 3.34 3.01 2.79 120 5.15 3.80 3.23 2.89 2.67 oo 5.02 3.69 3.12 2.79 2.57 Page 384 5.82 5.12 5.70 4.99 4.65 4.53 4.32 4.20 4.07 3.95 3.76 3.61 3.48 5.60 5.52 5.46 5.37 5.27 4.90 4.82 4.76 4.67 4.57 4.43 4.36 4.30 4.20 4,10 4.10 4.03 3.96 3.87 3.77 3.85 3.78 3.72 3.62 3.52 3.66 3.51 3.59 3.44 3.38 3.29 3.39 3.29 3.20 3.31 3.21 3.12 3.34 3.22 3.12 3.28 3.22 3.17 3.13 3.16 3.06 3.05 2.98 3.10 3.05 3.01 3.01 3.09 3.88 3.73 3.60 3.50 3.41 3.05 3.53 3.37 3.25 3.43 3.33 5.07 4.36 3.89 3.56 3.31 3.23 3.07 3.17 3.02 2.95 2.84 2.76 2,89 2,84 2.79 2.70 2.73 2,68 2,63 2.62 2.57 2.50 2.51 2.56 2.50 2.45 2,46 2,41 2,53 2,42 2.50 2.39 2.37 2.33 2.47 2,36 2,30 3.28 3.15 3.05 3.18 3.05 2.95 2,96 2,86 2,99 2,89 2.82 2,93 2.92 2.87 2.96 2.88 2.82 2.77 2.72 2.91 2,84 2.77 2,68 2.79 2.72 2.67 2.62 2.57 2.97 2.93 2.87 2.84 2,80 2.73 2.70 2,64 2.76 2.60 2.57 3.15 3.06 5.17 5.12 4.47 4.41 4.00 3.95 3.67 3.61 3.42 3.37 2,56 3.12 2.96 2,64 2,51 2.44 2,38 2.33 2.29 2,31 2,25 2.27 2.24 2,18 2,81 2,73 2,67 2.87 2.85 2.78 2.75 2.70 2.68 2.64 2.54 2.44 2.33 2.27 2.21 2,61 2.51 2,41 2.30 2.87 2.75 2.65 2.53 2.41 2.30 2.19 2.57 2.51 2.39 2.29 2.67 2.59 2.39 2.35 2,90 2.63 2.52 2.41 3.06 2.91 2.78 2,44 3.02 2.99 2.97 2.74 2.62 5.01 4.31 3.84 3.51 3.26 2,24 2,18 2.21 2.15 2.12 2.51 2,41 2.31 2.20 2,14 2.07 2.45 2.39 2.29 2.07 1.94 2.01 1.88 2.33 2.01 1.88 1.82 1.74 1.69 1.57 1.61 1.48 2,17 2.22 2.27 2.16 2.18 2.06 2.05 1.94 1,94 1.82 2.11 2.05 1.94 1.83 1.71 ©2014 Kaplan, Inc 1.76 1.64 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted APPENDIX E: CHI-SQUARED TABLE Values of \2 (Degrees of Freedom, Level of Significance) Probability in Right Tail Degrees of Freedom 0.99 0.975 0.95 0.9 0.1 0.05 0.025 0.01 0.005 0.0158 0.2107 2.706 4.605 6.251 7.779 3.841 5.991 7.815 9.488 5.024 6.635 7.378 9.210 7.879 10.597 9.348 11.143 13.277 12.838 14.860 9.236 11.070 12.832 15.086 16.750 10.645 14.449 16.013 17.535 16.812 18.548 18.475 20.090 21.666 23.209 20.278 21.955 23.589 25.188 24.725 26.217 27.688 29.141 30.578 28.300 29.819 31.319 32.801 0.000157 0.000982 0.003932 0.020100 0.102586 0.3518 0.1148 0.297 0.050636 0.2158 0.711 0.554 0.484 0.831 1.145 1.064 1.610 7_ 0.872 1.239 1.237 1.690 1.635 2.167 2.204 2.833 12.017 1.647 2.180 13.362 2,088 2,700 2.733 3.325 3.490 4,168 14,684 12.592 14.067 15.507 16.919 10 2.558 3.247 3.940 4.865 15.987 18.307 20.483 11 12 3.053 3.571 4.107 4.660 5.229 3.816 4.575 5.226 5.578 6.304 7.041 17.275 19.675 18.549 21,026 21.920 23.337 19.812 21.064 22.307 22.362 23.685 13 14 15 16 17 4,404 5.009 5.892 5.629 6.571 7.261 7.790 9.312 10.085 10.865 11.651 12.443 23.542 24.769 8.231 8.907 9.591 7.962 8.672 9.390 10.117 10.851 10.283 10.982 11.591 13.240 29.615 12,338 14,041 13.091 14.848 30.813 32.007 13.848 14.611 15.659 16.473 33.196 34.382 32.671 33.924 35.172 36.415 37.652 15.379 16.151 16.928 35-563 36.741 37.916 40.113 41.337 39.087 42,557 18.493 17.292 18.114 18.939 19.768 20.599 40.256 34.764 43.188 60.391 37.689 46.459 64.278 77.929 82.358 63.167 74.397 96.578 118.498 6.262 6.908 7.564 18 5.812 6.408 7.015 19 7.633 20 8.260 21 22 8.897 23 24 25 10.196 10.856 11.524 11.689 12.401 13.120 26 27 12.198 12.878 13.844 14.573 28 29 30 13.565 15.308 16.047 16.791 50 60 80 100 9.542 14,256 14.953 0.5844 29.707 32.357 37.485 53.540 70.065 40,482 57.153 74.222 17.708 8.547 ©2014 Kaplan, Inc 25.989 27.204 28.412 24.996 26.296 27.587 28.869 30.144 31.410 19.023 24.736 26.119 27.488 11.345 28.845 32.000 30.191 33.409 34.805 36.191 37.566 31.526 32.852 34.170 26.757 34.267 35.718 37.156 38.582 39.997 35.479 38.932 41.401 36.781 38.076 39.364 40.646 40,289 42,796 41.638 42.980 44.314 45.558 46.928 41.923 43.195 48.290 49.645 50.994 43.773 45.722 46.979 45.642 46.963 48.278 49.588 50.892 53.672 67.505 71.420 76.154 79.490 79.082 101.879 83.298 88.379 112.329 135.807 91.952 116.321 140.170 38.885 124.342 44.461 106.629 129.561 44.181 52,335 Page 385 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted INDEX A absolute frequency 170 additional compensation arrangements 53 addition rule of probability 209,211 additivity principle 132 alternative hypothesis 311 amortization 123 annuities 110 annuities due 110 a priori probability 208 arithmetic means 176 Arms index 361 B bank discount yield (BDY) 152 barcharts 351 Bayes’ formula 228 Bernoulli random variable 255 biased estimator 184 bimodal data set 178 binomial distribution 255 binomial formula 231 binomial random variable 255,256 binomial tree 257 Bollinger bands 358 bond-equivalent yield (BEY) 156 breakdown 354 breakout 354 continuation patterns 356 continuous compounding 271 continuous distribution 252 continuous random variable 252 continuous uniform distribution 259 contrarian strategy 358 convergence 359 correlation 221, 262 cost of capital 109 Country Version of GIPS (CVG) 89 covariance 219 cross-sectional data 289 cumulative absolute frequency 172 cumulative distribution function 253 cumulative relative frequency 172 D c candlestick charts 352 capacity 60 cash flow additivity principle 132 CD equivalent yield 154 central limit theorem 289 change in polarity 355 Chebyshev’s inequality 185 chi-square distribution 333 Code of Ethics 16 coefficient of variation 186 combination formula 231 communication with clients 60 composites 90 compounding frequency 121 compound interest 102, 103 conditional probability 209 conduct as participants in CFA Institute programs 72 Page 386 confidence interval 262, 294 confidence interval for the population mean 295 consistent estimator 292 data mining 299 decennial patterns 362 decile 180 decision rule 312, 317 default risk premium 105 degrees of freedom 293 descriptive statistics 168 desirable properties of an estimator 292 diligence and reasonable basis 56 disclosure of conflicts 65 discount factor 109 discounting 103, 109 discount rate 104, 109, 128 discrete distribution 252 discretely compounded returns 270 discrete random variable 251 discrete uniform random variable 254 dispersion 181 distribution function 253 divergence 359 double bottom pattern 356 double top pattern 356 down transition probability 257 downtrend 354 E effective annual rate (EAR) 105 effective annual yield (EAY) 153 efficient estimator 292 ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Index empirical probability 208 equality of variances 335 event 207 excess kurtosis 191 excess return 187 exhaustive events 207 expected value 215 and variance for a portfolio of assets 223 of a binomial random variable 256 F G geometric mean 179 GIPS objectives 87 Global Investment Performance Standards (GIPS) 85 H harmonic mean 180 head-and-shoulders pattern 355 histogram 174 historical simulation 273 holding period return (HPR) or holding period yield (HPY) 148, 153 hypothesis 310 hypothesis testing, steps 310 interest on interest 102 intermarket analysis 363 internal rate of return (IRR) 145 IRR decision rule 147 IRR method 147 problems associated with 147 interval 170 joint probability 210 K knowledge of the law 20 Kondratieff waves 362 L F-distribution 336 Fibonacci ratios 363 flags 357 flow of funds 361 frequency distribution 170 frequency polygon 174 future value (FV) 102 of an annuity due 113 of an ordinary annuity 110 of an uneven cash flow series 119 of a single sum 108 independence and objectivity 23 independent events 213 inferential statistics 168 inflation premium 105 J kurtosis 190 interpretation 192 factorial 230 fair dealing 39 I interval scale 169 inverse head-and-shoulders pattern 356 labeling 230 leptokurtic distributions 90 likelihood 209 line charts 351 liquidity 60 liquidity risk premium 105 loan amortization 123 loan payment calculation 124 location of the mean, median, and mode 189 lognormal distribution 269 longitudinal data 289 look-ahead bias 300 loyalty, prudence, and care 37 loyalty (to employer) 48 M marginal probability 209 margin debt 361 market manipulation 35 material nonpublic information 32 maturity risk premium 105 mean absolute deviation 182 mean differences 329 measurement scales 169 measures of central tendency 175 measures of location 181 median 177 mesokurtic distributions 190 misconduct 31 misrepresentation 28 modal interval 171 mode 178 money market yield 154 money-weighted rate of return 148 Monte Carlo simulation 272 moving average convergence/divergence 359 moving average lines 357 multiplication rule of counting 233 multiplication rule of probability 209, 210 multivariate distribution 262 ©2014 Kaplan, Inc Page 387 PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Index multivariate normal distribution 262 mutual fund cash position 361 mutually exclusive events 207 N negative skew 188 net present value (NPV) 120, 143 NPV decision rule 146 new equity issuance 362 node 257 nominal risk-free rate 105 nominal scales 169 nonparametric tests 339 normal distribution 261 null hypothesis 311 o objective probabilities 208 odds 208 opinion polls 360 opportunity cost 104,109 ordinal scales 169 ordinary annuities 110 outcome 207 outliers 188 overbought market 358 oversold market 358 P paired comparisons test 330 panel data 289 parameter 169 parametric tests 339 pennants 357 percentile 180 performance measurement 151 performance presentation 45 periodic rates 105 permutation formula 231 perpetuity 116 platykurtic distributions 190 point and figure charts 352 point estimates 292 population 168 population mean 175 population standard deviation 183 population variance 182 portfolio expected value 223 portfolio variance 223 positive skew 188 power of a test 317 present value (PV) 102 of an annuity due 115 of an ordinary annuity 111 Page 388 of an uneven cash flow series 119 of a perpetuity 116 of a single sum 109 preservation of confidentiality 47 presidential cycles 362 price relative 271 priority of transactions 68 probability distribution 251 probability function 251 Professional Conduct Program 15 properties of an estimator 292 properties of probability 207 put/call ratio 360 p-value 320 Q quantile 180 quartiles 180 quintile 180 R random variable 207 range 181 rate of change oscillator 359 ratio scales 169 real risk-free rate 105 record retention 63 rectangles 357 reference to CFA Institute, the CFA designation, and the CFA Program 74 referral fees 71 relative dispersion 186 relative frequency 171 relative strength analysis 354 Relative Strength Index 359 required rate of return 104, 109 resistance level 354 responsibilities of supervisors 54 reversal patterns 355 reward-to-variability ratio 187 risk, types of 105 Roy’s safety-first criterion 267 s sample 168 sample kurtosis 192 sample mean 175 sample selection bias 300 sample skewness 191 sample standard deviation 185 sample statistic 170 sample variance 184 sampling and estimation 287 ©2014 Kaplan, Inc PRINTED BY: Stephanie Cronk Printing is for personal, private use only No part of this book may be reproduced or transmitted without publisher's prior permission Violators will be prosecuted Book - Ethical and Professional Standards and Quantitative Methods Index sampling distribution 288 sampling error 288 secondary offerings 362 selecting the appropriate test statistic 298 sentiment indicators 360 Sharpe ratio 187 shortfall risk 267 short interest 361 short interest ratio 361 short-term trading index (TRIN) 361 significance level 316 simple interest 153 simple random sampling 287, 289 skew, skewness 188 interpretation 192 Spearman rank correlation test 339 standard deviation 183 standard error of the sample mean 290 standardizing 264 standard normal distribution 264 Standards of Professional Conduct 16 stated annual interest rates 105 statistics 168 stochastic oscillator 360 stratified random sampling 288 Student’s t-distribution 292 subjective probability 208 suitability 42 support level 354 survivorship bias 300 symmetrical distributions 188 systematic sampling 287 timeline 103 time-period bias 300 time-series data 289 time value of money 102 time-weighted rate of return 150, 151 total probability rule 209, 214 total return 148 tree diagram 218 trend 354 trendline 354 triangles 356 trimodal data set 178 triple bottom pattern 356 triple top pattern 356 t-test 321 type I error 316 type II error 316 u unbiased estimator 292 unconditional probability 209 unimodal data set 178 univariate distributions 261 up transition probability 257 uptrend 354 V verification of GIPS compliance 86 Volatility Index (VIX) 360 volume charts 353 w T weighted mean 177 t-distribution 292, 293 technical analysis 350 z 316 threshold level 267 z-test test statistic 322 ©2014 Kaplan, Inc Page 389 ... Finance SS 11 Economics SS4, Economics SS5, 11 Equity Investments SS13, 14 Financial Reporting & Analysis SS7 13 Fixed Income SS16 12 Fixed Income SSI Financial Reporting & Analysis SS8 14 Derivatives... Quantitative Methods, CFA Program Level I 2 015 Curriculum, Volume (CFA Institute, 2 014 ) page 10 2 The Time Value of Money Discounted Cash Flow Applications page 14 3 page 16 8 Statistical Concepts... Concepts page 207 STUDY SESSION Reading Assignments Ethical and Professional Standards and Quantitative Methods, CFA Program Level 12 015 Curriculum, Volume (CFA Institute, 2 014 ) page 2 51 Common Probability